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Boom in wine prices

The stockmarket has been on one of the strongest bull runs in history before the recent turbulence but there is one investment that has made its spectacular gains look pedestrian – fine wine.

The world&#39s top wines have become an investment commodity.

Gary Boom, a former currency broker and now chairman of wine broker Bordeaux Index, says: "Taking the compounded returns each year since 1978, the Dow would give you 14 per cent, the FTSE 12 per cent but the Decanter index of auction prices of the top 59 Bordeaux wines would give you around 17 per cent."

How many stocks could match the performance of the claret Chateau Latour 1990?

If an investor bought a 12- bottle case of the 1990 vintage from wine broker Farr Vintners in August 1991, they would have paid £376. The same case in August 1997 would cost £2,000, an increase of 765 per cent.

In recent years, the price of fine red Bordeaux, which is where the majority of wines used for investment come from, has gone through the roof. A number of factors have caused this.

The years 1991, 92, 93 and 94 saw a run of poor vintages in Bordeaux. As the world economy was coming out of recession and people felt able to spend money again, most of the stocks of the good to excellent vintages from the 1980s had been sold.

This led to a rush of people seeking to get their hands on the remaining stocks and, with thousands of new millionaires being created in the Far East, winemakers and brokers for the first time found a ready market for their prestige wines.

But Farr Vintners wine trader Gaylene Thompson is keen to give investors a warning that will be familiar to any IFA.

She says: "It is hard to argue with the numbers but I would advise caution. You have to remember that the price of wine can go down as well as up. You really do have to know what you are doing and go for the blue-chip wines from good vintages. After all, I certainly would not go into shares straight away with no knowledge."

Chris Carrad, tastings co-ordinator for Wine Magazine, says it pays to buy early. "You have to buy as soon as a wine is released and, if you are buying en primeur, you have to go for the blue-chip clarets or wines such as Penfolds Grange or Burgundy made by Domaine de la Romanee Conti," he says.

Recently, wine prices at auction have slowed as stockmarkets in South-east Asia have collapsed and the new wealthy wine buyers have begun to feel the chill wind of currency crises and recession.

The Bordeaux producers have also begun to realise that the traders and middlemen have started to make huge amounts of money on their wines. Prices have been spiralling as the chateaux have sought to capitalise on the booming market, with price rises of up to 50 per cent between 1995 and 1996 common.

But new markets are emerging all the time and, following Chinese premier Jiang Zemin&#39s pronouncement that red wine is healthy, traders hope to find new willing buyers in China.

Boom says he is bullish about the long-term prospects for fine wine.

He says: "Mouton only makes 20,000 cases or so and it can&#39t make any more. There are more millionaires than that in the UK alone. They would think nothing about paying an extra £1,000 for a case.

"I still believe wine is under- priced and it has archaic pricing and distribution. If it is done efficiently, prices will go up. The top wines are made in limited quantities and they can&#39t make any more.

"Say, for example, that China catches on. They still are not going to be able to make any more. If you get a portfolio of the top 59 wines, you will do very well.

"Even if the investment does go down, you can always drink it. You can&#39t do that with a share."

Wines to Invest In

By far the biggest wine investment market is in fine red Bordeaux from the sub-regions Medoc, St Emillion, Pomerol and Graves.

Other wines which fetch high prices include sweet whites from Sauternes and Barsac, Burgundies from producers such as Domaine de la Romanee Conti and top Rhone reds from producers such as Marcel Guigal.

A small but growing number of wines from the new world, such as Penfolds Grange from Australia and Opus One from California, have also recently been showing that they have the potential to deliver impressive investment returns.

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